US embassy cable - 03ANKARA4548

UNCLAS SECTION 01 OF 03 ANKARA 004548 
 
SIPDIS 
 
 
STATE FOR EB/IFD/OIA 
TREASURY FOR OASIA 
DEPT PLEASE PASS USTR 
FAS FOR ITP/THORBURN 
USDOC FOR ITA/MAC/DDEFALCO 
 
 
E.O. 12958: N/A 
TAGS: EINV, KTDB, EFIN, TU 
SUBJECT:  2003 INVESTMENT CLIMATE STATEMENT FOR TURKEY - 
PART II 
 
Ref: STATE 128494 
 
 
The following is the second of four cables transmitting the 
2003 Investment Climate Statement for Turkey: 
 
 
5.  PERFORMANCE REQUIREMENTS/INCENTIVES 
 
 
Turkey is a party to the WTO Agreement on Trade Related 
Investment Measures (TRIMS). 
 
 
Turkey provides investment incentives to both domestic and 
foreign investors, though these were scaled back in 2003. 
These include a corporate tax exemption of 40 percent of 
specified investment expenses deductible from future taxable 
profits for investments greater than 5 billion TL 
(approximately USD 3,600).  Certain other incentives may 
require an incentive certificate from the Turkish Treasury 
Undersecretariat.  Investment incentives are defined in a 
May 2003 Finance Ministry decree.  For more information on 
the Turkish incentive system, please visit: 
www.investinturkey.gov.tr/incentives.htm). 
 
 
There are no performance requirements imposed as a condition 
for establishing, maintaining, or expanding an investment. 
There are no requirements that investors purchase from local 
sources or export a certain percentage of output.  However, 
domestic or foreign investors who commit to realizing USD 
10,000 of exports upon completion of the investment may be 
exempt from certain fees and taxes, such as those related to 
land registration or company establishment.  Investors' 
access to foreign exchange has no relation to exports. 
 
 
There are no requirements that nationals own shares in 
foreign investments, that the shares of foreign equity be 
reduced over time, or that the investor transfer technology 
on certain terms.  There are no government imposed 
conditions on permission to invest, including location in 
specific geographical areas, specific percentage of local 
content - for goods or services - or local equity, import 
substitution, export requirements or targets, employment of 
host country nationals, technology transfer, or local 
financing. 
 
 
The GOT does not request that investors disclose proprietary 
information, other than publicly available information, as 
part of the regulatory approval process.  Enterprises with 
foreign capital must send their activity report, submitted 
to the general assembly of shareholders, auditor's report, 
and balance sheets to the Treasury's Foreign Investment 
Directorate every year by May. 
 
 
With the exceptions noted under Section 1 "Openness to 
Foreign Investment" and Section 8 "Transparency of the 
Regulatory System", Turkey grants all rights, incentives, 
exemptions and privileges available to national capital and 
business to foreign capital and business, on a MFN basis. 
American and other foreign firms can participate in 
government-financed and/or subsidized research and 
development programs on a national treatment basis. 
 
 
Visa, residence, or work permit requirements have not 
generally inhibited foreign investors.  Expatriates may be 
assigned as managers or technical staff.  We are aware of 
one case in the tourism sector in which denial of a 
residence permit has hindered operations for a foreign 
investor.  A 2003 law (no. 4817) on work authorizations for 
foreign nationals should give the Ministry of Labor and 
Social Security more authority over work permits. 
Implementing regulations are to be issued later this year. 
 
 
Outside of the agricultural sector, Turkey generally has a 
liberal foreign trade regime.  There are no discriminatory 
or preferential export or import policies directly affecting 
foreign investors.  Turkey harmonized its export incentive 
regime with the European Union in 1995, prior to the start 
of the Customs Union.  Turkey currently offers a number of 
export incentives, including credits through the Turkish 
Eximbank, energy incentives, and research and development 
incentives.  Cash incentives for exporters have been 
eliminated.  Foreign investors can participate in these 
export incentive programs on a national treatment basis. 
More information on Turkey's trade regime can be found at 
www.foreigntrade.gov.tr. 
Military procurement generally requires an offset provision 
in tender specifications when the estimated value of the 
imported goods and/or services exceeds five million dollars. 
Turkish procedures provide little incentive for U.S. 
companies to satisfy offset requirements (the obligation to 
invest or buy Turkish exports as a condition of winning 
defense contracts) by investing in non-defense industries. 
6.  RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
 
 
Foreign and domestic private entities have the right to 
freely establish and own business enterprises and engage in 
all forms of remunerative activity.  As noted above, 
restrictions exist in the establishment of firms in certain 
sectors where the share of foreign ownership is limited to 
20 percent in broadcasting and up to 49 percent in aviation, 
maritime transportation, and value-added telecommunication 
services.  Certain activities are reserved for GOT owned 
enterprises.  For example, by law, Turk Telekom has a 
monopoly until December 31, 2003 on providing basic 
telephone services.  Beyond these areas, private entities 
may freely establish, acquire, and dispose of interests in 
business enterprises, and foreign participation is permitted 
up to 100 percent. 
 
 
Competitive equality is the standard applied to private 
enterprises in competition with public enterprises with 
respect to access to markets, credit, and other business 
operations.  Turkey is adopting the EU's competition policy; 
a Competition Board was established in 1997 to implement the 
1994 competition (anti-monopoly) law. 
 
 
7.  PROTECTION OF PROPERTY RIGHTS 
 
 
Secured interests in property, both chattel and real are 
recognized and enforced.  There is a recognized and reliable 
system of recording such security interests.  For example, 
there is a land registry office where real estate is 
registered.  Turkey's legal system protects and facilitates 
acquisition and disposal of property rights, including land, 
buildings, and mortgages, although some parties have 
complained that the courts are slow in rendering decisions 
and that they are susceptible to external influence (see 
"Dispute Settlement"). 
 
 
Turkey's intellectual property rights regime has improved, 
but still presents problems.  In 1995, the Turkish 
Parliament approved new patent, trademark and copyright laws 
in connection with preparations for Turkey's customs union 
with the EU. In 2001, the Parliament enacted amendments to 
the copyright law, which provide retroactive protection, 
expand the list of protected items and include deterrent 
penalties against piracy.  These amendments brought Turkey 
into compliance with the WTO Agreement on Trade Related 
Aspects of Intellectual Property Rights (TRIPS) in most 
areas.  In recognition of Turkey's progress in the IPR area, 
USTR removed Turkey from its Special 301 Priority Watch List 
and placed the country on its Watch List in 2002, where it 
remains in 2003. 
 
 
Intellectual property holders have praised Turkey's 2001 
legislation as a significant improvement in the legal 
regime.   In the software area, piracy rates have come down 
in recent years following an anti-piracy campaign and a 
directive to legalize software used in government bodies. 
However, piracy rates for recorded music remain persistently 
high.  Trademark holders contend that there is widespread 
and often sophisticated counterfeiting of their marks in 
Turkey. 
 
 
Turkey's 1995 patent law replaced a law originally passed in 
1879.  New trademark, industrial design, and geographic 
indicator laws were passed at the same time, completely 
revamping Turkey's foundation for industrial property 
protection.  Turkey also acceded to a number of 
international conventions in 1995, including the Stockholm 
Act of the Paris Convention, the Patent Cooperation Treaty, 
and the Strasbourg Agreement.  The Turkish Patent Institute 
(TPI) was established in 1994 as an independent legal entity 
(Law No. 4004, June 16, 1994) under the Ministry of Industry 
and Trade.  TPI's mission is to support technological 
development in Turkey, establish and protect intellectual 
property rights and provide public information on 
intellectual property rights.  Currently, TPI is 
understaffed to affect countrywide protection. 
 
 
In accordance with the 1995 patent law and Turkey's 
agreement with the EU, patent protection for pharmaceuticals 
began on January 1, 1999.  Turkey has been accepting patent 
applications since 1996 in compliance with the TRIPS 
agreement "mailbox" provisions.  The patent law does not, 
however, contain interim protection for pharmaceuticals in 
the R&D "pipeline." 
 
 
The key IPR concern for research-based pharmaceutical 
companies is Turkey's lack of data exclusivity protection, 
which is required by the TRIPS agreement.  The lack of data 
exclusivity, combined with the lack of interim patent 
protection, poses substantial problems for research-based 
pharmaceutical companies. 
 
 
8.  TRANSPARENCY OF THE REGULATORY SYSTEM 
 
 
The GOT has adopted policies and laws, which in principle 
should foster competition and transparency. However, foreign 
companies in several sectors claim that regulations are 
sometimes applied in a nontransparent manner.  In 2002, the 
GOT published a report on transparency and good governance 
in Turkey's public sector and established an interagency 
steering committee to implement it.  The plan calls for: 
greater public access to information from the government and 
public sector entities; financial disclosure by elected 
public officials; and decentralization of most public 
services. 
 
 
The government in principle follows competitive bidding 
procedures.  In 2003, Law 4734 on Public Procurement entered 
into force.  The law established a board to oversee public 
tenders, and lowered the minimum bidding threshold at which 
foreign companies can participate in state tenders. 
However, the law restricts preferences for domestic bidders 
to Turkish citizens and legal entities established by them. 
Domestic bidders who form joint ventures with foreign 
bidders are not eligible for the preference.  The public 
procurement law may be further amended in the future. 
 
 
In general, labor, health and safety laws and policies do 
not distort or impede investment, although legal 
restrictions on discharging employees may provide a 
disincentive to labor-intensive activity in the formal 
economy.  Certain tax policies distort investment decisions. 
High taxation of cola drinks discourage investment in this 
sector.  Generous tax preferences for free zones provide a 
stimulus to investment in these zones, perhaps at the 
expense of investment elsewhere in Turkey.  These 
preferences may be trimmed under legislation currently under 
consideration. 
 
 
Particularly beyond the establishment phase, bureaucratic 
"red tape" has been  a significant barrier to companies, 
both foreign and domestic.  Parliament passed Law 4884 in 
June 2003 which should simplify company establishment 
procedures.  The law repeals the permit requirement from the 
Industry and Commerce Ministry for certain firms, institutes 
a single company registration form and enables individuals 
to register their companies through local commercial 
registry offices of the Turkish Union of Chambers and 
Commodity Exchanges.  The goal is to enable registration to 
be completed in as little as one day and to encourage 
electronic sharing of documents.  Turkish government 
agencies are expected to issue implementing regulations 
needed to bring the law into force.  The government is also 
considering other measures  to streamline procedures for 
establishing and operating a business in Turkey, based on 
recommendations made in a World Bank-funded study on 
administrative barriers to investment. 
Pearson